"Strengthening the economy s resilience will be important to maintain Pakistan s favorable growth momentum and ensure sustainable private investment and job creation in the medium term," Harald Finger, who led the IMF staff mission to Pakistan.

"While economic growth has been accelerating and inflation remains subdued, Pakistan is facing important near- term economic challenges," he said.

Surging imports have led to a decline in international reserves despite higher external financing, he noted, adding that the increase in the fiscal deficit last year has added to these trends.

"Intercompany arrears in the power sector continue to accumulate and need to be addressed decisively," Finger said.

"While the authorities have taken steps to address these challenges, greater efforts are required to prevent a further build-up of vulnerabilities and preserve Pakistan s hard-won macroeconomic stability," he said.

Finger welcomed the recent move by the State Bank of Pakistan to allow adjustment of the exchange rate, saying continued exchange rate flexibility will be important in the period ahead.

"Continued exchange rate flexibility in the period ahead will be important to facilitate external adjustment in support of exports and economic growth.

"Alongside, fiscal discipline and an adequately tight monetary policy stance are needed to reverse the widening of external imbalances," he said.

The IMF called for a strong reform effort to maintain external stability, ensure debt sustainability, and support higher and more inclusive growth in the medium term for Pakistan.

"This includes pursuing medium-term fiscal consolidation driven by accelerated efforts to broaden the tax base, strengthening the monetary policy framework and autonomy of the SBP, careful phasing in of new external liabilities to contain external stability risks, eliminating the losses of public sector enterprises, improving the business climate, and continued strengthening of the financial sector," said Finger.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)